Tier 4
The fastest growing segment of private health insurance is called "Tier 4." Under this system, co-payments for drugs vary with how expensive they are. Expensive drugs are classified "Tier 4" (some plans even have a "Tier 5"), and the co-payments are based on a percentage of the drug's cost. As the New York Times reports, 10% of private plans, and 86% of Medicare plans, now have Tier 4. A person's co-payments can now easily jump from several hundred to thousands of dollars a year. The system began with Medicare drug plans, and it has spread in the private market to employers looking to keep down costs. Those who are healthy can pay less, while those who are sick pay more.
This is a perversion of insurance. The point of insurance is to socialize costs. No one can control or predict when they will get sick. Although the cost of health care can be enormous for an individual, it's entirely predictable how many people overall will get sick and how much money their care will require. Without a deep, visceral commitment to this fundamental concept, universal healthcare will have no chance. Americans will have to reject Tier 4's individualistic ideology, and the new president will need a way of communicating the alternative.
Contrasting health insurance with car insurance clarifies why the former should be socialized. In the New York Times Magazine, Stephen Dubner and Steven Levitt (the co-authors of Freakonomics) argued that car insurance should be priced based on how much people drive. "U.S. auto insurance," they write, "is generally an all-you-can-eat affair." Whether you drive 300 or 3000 miles per month, you'll generally pay the same insurance. One way to get people to drive less, they argue, is to make insurance "pay as you drive" (PAYD). The problem is that the incentives don't work for health care. A person doesn't choose to have a stroke, to get diabetes, or to develop cancer. Making the cost of treatment more expensive will just lead people to seek less treatment (which actually increases costs overall--insulin costs a lot less than dialysis), not to avoid developing a chronic disease. I could find out tomorrow that I have diabetes, or you could, and making treatment more expensive for the one that does won't help either of us. As Bernie Sanders said on the Colbert Report on Monday, every other rich country has figured out how to provide comprehensive health care for all, and they do it for less than half the cost. Why can't we just copy them?
Comments (10)
every other rich country has figured out how to provide comprehensive health care for all, and they do it for less than half the cost. Why can't we just copy them?
"Every other rich country":
(1)Long ago decided that health care was important enough to be available to all its citizens.
(2)Do not have 50%+ of voters who vote time and again for 'values', which do not include universal health care for children, or adults.
(3)Do not have a huge for profit health insurance industry that is a cash cow for incumbent politicians who use it to run TV ads pushing meaningless never solved 'hot button' issues to an ill-informed easily distracted public.
The profits are also used in the same fashion to kill any single payer system that might put the health care cash machine out of business.
April 25, 2008 6:08 PM | Reply | Permalink
Sssshhhhh! You used the "S" word with respect to health care. For 28 years, this country has worshipped at the foot of the rugged individual. Although it would appear that the majority of citizens feel the health care system is in crisis and that we need universal health care, one would hardly know this from the Washington political debate. In spite of what voters might say, the savvy politician understands that promoting major changes in the system such as it is would be DOA when they arrive on Capital Hill so the theme is to push for what we may think of as substantial cosmetic changes--a contradiction to be sure but then we're talking about inside the Beltway politics. I suspect it will take more then Tier 4 pharmaceutical costs to affect a desire for serious change in hearts and minds of voters and politicians; changes that eliminate insurance carriers, and, establish a single payer responsible for bottom line costs and who issues payments.
April 25, 2008 11:11 PM | Reply | Permalink
No other rich country consists of people as fat, lethargic, and as generally unhealth yas Americans.
No other country spends as much trying to extend dying people's lives by a few weeks.
We could drastically lower costs if we let more people die without heroic measures, and still have a higher life expectancy if we weren't so enamored of junk food.
I don't think that the cost savings, etc. from single-payer would actually materialize here. If anything, care would get more expensive if it were completely disbursed.
April 26, 2008 12:11 AM | Reply | Permalink
Re: No other rich country consists of people as fat, lethargic, and as generally unhealth yas Americans.
Not true. Obesity, smoking, excess drinking, and sexual irresponsibility are worldwide plagues, and not just in the First World nations, but even in many Third World countries. Of course some problems are worse in some nations than others, and while America does a bit worse in obesity, it does better in smoking and crinking than many of its peers. And in the final end, everyone dies and almost everyone becomes old and frail and chronically ill, whether at 90 or 60. (We tend to ignore the high costs of the longer-lived people because they are covered under Medicare rather than private insurance).
Re: If anything, care would get more expensive if it were completely disbursed.
We already have universal healthcare-- we just do it through medical bankruptcies and the cost shifting of uncompensated care. So no, our bills would not go up. They might even come down due to savings on administrative expenses and early treatment and prevention of conditions in the currently uninsured who often do not seek treatment until what should be a manageable (and relatively cheap) problem becomes a major (and costly) emergency.
April 26, 2008 12:34 PM | Reply | Permalink
The worst thing is that these drugs only cost a few dollars to manufacture. the only reason they sell for hundreds of thousands of dollars is because of government granted patent monopolies. This is an unbelievably stupid way to finance prescription drug research. If economics was an honest profession, economists would all be screaming about the unbelievable inefficiency.
btw, it's great to see that the Freakonomics boys have discovered pay as your drive insurance. I have been writing on it for more than a decade and I wasn't the first economist to write on the topic. Maybe in a decade they will discover the inefficiency of patent supported research also.
April 26, 2008 12:43 PM | Reply | Permalink
Dr. Baker,
What do you make of Marcia Angell's arguments from "The Truth About the Drug Companies" (essay version here http://www.nybooks.com/articles/17244) that the R&D justification is a myth because 1- it's a small part of their budget and way lower than profits; 2- many of the companies are actually foreign; and 3- universities do a lot of the innovating on public money and then license the patents?
And my apologies for how I presented the Freakonomics thing--the article was on how to decrease driving (so they discuss tax measures along with PAYD) and they acknowledge that the idea for PAYD is at least 15 years old (and not their own).
April 27, 2008 11:03 AM | Reply | Permalink
My opinion is universal healthcare=socialized medicine. I dont think we want that. If the government is going to control it, it will not work. All of the other gov't programs are broken, this one will be too. What if our doctor doe not want to participate? Are we going to force physicians to participate or acccept this universal plan, and the allowable payment amount? If the physicians are not forced, then what? Are we in the business of forcing people into doing something they dont want to do? The answer is yes. More and more. I don't want to contribute to SSI anymore but I am forced to. I am 42 years old and have been working since I was 15 and I would be willing to forego all money that I have paid into the system to invest in a private fund. In 20 years I could retire comfortably. But with my gov't's help, as it stands now, in 25 years I can retire if I am lucky. And you want them to create some sort of Universal Healthcare? I would rather keep paying through the nose for my insurance and still have MY choices and control. Sorry for the rant.
April 27, 2008 8:32 AM | Reply | Permalink
Re: My opinion is universal healthcare=socialized medicine.
We have universal education, but still have private schools. We have universal police protection, but plenty of space for private security guards. We very nearly have universal transportation-- and most of it is private not public. And of course we have universal clothing with almost no govermment industry providing wearing apparel.
We can have universal healthcare without total socialized medicine. That we do not have universal helathcare, IMO, is as much as outrage as if we did not have indoor plumbing, or were still practicing slavery.
Re: I am 42 years old and have been working since I was 15 and I would be willing to forego all money that I have paid into the system to invest in a private fund.
And if your private fund had invested in Enron or subprime mortgages you could be left living under a bridge and eating out of dumpsters in your old age. What part of Social SECURITY do you not understand? And meanwhile there is still plenty of room for private retirment investment. The govermnment even gives you a tax break for 401k's and IRA's. Why haven't you invested in them if you want to save for retirement? Consider Social Security your 100% secure hedge fund: money you will have no matter what (OK, excluding nuclear war, asteroids obliterating civilization etc.) It's your fall-back position, your rainy day fund that will not fail. That's just common sense and good conservative fiscal practice.
April 27, 2008 2:11 PM | Reply | Permalink
You are correct. We do have government(Universal) education and private schools. Which do you think provides a better education? We have universal police protection and I thank God for it. As far as universal transportation, I really do not know anything about it. I drive my car. As far as universal clothing, I really do not know what that is supposed to mean(I went to free government schools, sorry).
My point about social security was that I no longer wish to contribute. I would prefer to invest the money elsewhere. I have taken the necessary steps to secure my future and I can assure you, that regardless of whatever may occur, I will never be living under a bridge or eating out of dumsters.
I also believe that I am paying into a fund(social SECURITY) that is NOT secure and I will NOT get my money back. That money is already spent.
Socialized medicine does not work in other countries, why would we think it would work here?
What would be the benefit for me? Who does benefit from it?
April 27, 2008 4:32 PM | Reply | Permalink
While it is generally true that we cannot predict when we will get sick, it is just as true that everyday we make choices that directly effect our health. But my health insurance premium is the same as the guy in the office next door who is more than 100 pounds over weight, eats a fat full diet everyday, never exercies and smokes cigars when he is overindulging in spirits?! However, if we went to purchase life insurance, his premium would be several times higher than mine. The cost of health insurance, private or public, should be based in part on how well the proposed insured is taking care of themselves. You have a life insurance physical, but not even a check up for health insurance?! It makes no sense to say that those who exercise common sense, moderation and a little sweat should subsidize the nonsensical, self abusive and/or lazy.
May 2, 2008 4:11 PM | Reply | Permalink